As tensions rise on the Korean Peninsula, the US is preparing for major defense cuts. Defense chief Chuck Hagel has called on the Pentagon to simultaneously confront America's fiscal and national security challenges.

In his first major policy speech as US defense secretary, Chuck Hagel has warned that escalating threats by North Korea represent a "real and clear danger" to American interests, while at the same time calling on the Pentagon to brace for major budget cuts as Washington implements austerity measures.

"We take those threats seriously, we have to take those threats seriously," Hagel told students at the National Defense University in Washington, D.C. on Wednesday. "We are doing everything we can, working with the Chinese and others to defuse the situation on the [Korean] Peninsula."

The defense secretary's warning came after Pyongyang blocked access to the Kaesong industrial complex on Wednesday, which hosts factories jointly run by North and South Korea. The complex is one of the only examples of cooperation between Pyongyang and Seoul.

North Korean leader Kim Jong-Un may be consolidating domestic power by projecting strength

Later, Pyongyang further escalated its rhetoric by claiming to have authorized a nuclear strike on the US. Tensions have been boiling on the Korean Peninsula since the North launched a missile into space last December and tested its third nuclear device in February, precipitating tightened UN sanctions.

"In theory such rhetoric is political, it's a set of gestures, it's a negotiating tactic as well as an effort to cloak the economic weakness of North Korea by giving it the image of being a constantly threatening military power," Anthony Cordesman, a defense expert with the Center for Strategic and International Studies (CSIS), told DW.

"But the difficulty we have historically is that that kind of rhetoric can trigger a set of incidents that no one can really predict …and what starts out as a limited attack or military gesture can escalate into a serious conflict or major military incident," Cordesman said.

'They have a nuclear capacity'

Although North Korea's missiles are unable to reach the US, they could pose a threat to northeast Asia, a region critical to the global economy, according to Cordesman. Defense Secretary Hagel clearly stated Pyongyang's developing capabilities.

"They have nuclear capacity now, they have missile delivery capacity now," Hagel said after delivering his speech in Washington. Over the past week, the US has deployed B-52 and B-2 stealth bombers, which can carry a nuclear payload, as well as two US destroyers to South Korea.

"That was a direct form of reassurance to South Korea and deterrence to North Korea," Barry Pavel, a defense expert with the Atlantic Council, told DW. "You're always trying to thread the needle here of how much reassuring and deterring is good with a country, and how much is provoking it into a corner to take further escalatory steps to save face."

The US is conducting military exercises with its ally, South Korea

On Wednesday, the Pentagon said that it was deploying a ballistic missile defense system to the US Pacific territory of Guam. The US and South Korean militaries have also been conducting joint exercises, which are scheduled to continue through the end of April.

"The strategy is as it's always been - work together, exercise together, consult together," Pavel said.

Impact of defense cuts

Just as tensions escalate on the Korean Peninsula, the US Defense Department faces looming budget cuts. At the beginning of March, Congress failed to strike a deal to avoid automatic spending cuts, called a sequester. The $1 trillion in austerity will set in over the course of the next decade, with $500 billion (388 billion euros) set to hit the Defense Department. This year, the Pentagon faces a $41 billion cut.

"We need to challenge all past assumptions, and we need to put everything on the table," Hagel said, singling out weapon acquisitions, personnel costs and overheads as sources of overspending. The defense secretary expressed concern that the Pentagon was developing "systems that are vastly more expensive and technologically risky than what was promised or budgeted for."

But according to defense expert Cordesman, while the defense cuts will impact aspects of training and maintenance in 2014 and beyond, they will not undermine Washington's core military capabilities.

"One has to be careful here, when you talk about austerity," Cordesman said. "You're essentially still talking about a nation which will have vastly larger military expenditures than any other country in the world and whose core power projection programs are not going to be affected."

In addition to its own core defense programs, Pavel believes that the US will in the future rely increasingly on the capabilities of its major allies - such as South Korea - to resolve security crises like the one in Northeast Asia.

"The US has the largest alliance network in the world," Pavel said. "And I think, going forward, it's depending on its intention to leverage this network to an even greater degree than they have in the past."